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Analysis and Modeling of NYSE Arca Oil & Gas Stock Index Returns

Author

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  • Violeta DUTA

    (Bucharest University of Economic Studies)

Abstract

Through this study we have analyzed and modeled the returns of the NYSE ARCA OIL & GAS stock exchange index (symbol XOI). This index, previously called the AMEX Oil Index, comprises 20 of the most important oil companies operating in the oil industry. For a better overview, we have presented the factors that influence the price of oil and the effects of lowering its price on oil companies and on the economy of oil exporting states. The study was conducted between August 1983 and April 2017 on a daily frequency of data. In trying to identify the most appropriate predictive model for 10 periods, we tested several ARIMA, ARCH and GARCH models. Based on the AIC criterion, we selected the ARMA (2,1) - GARCH (1,1) model, which we predicted for the next 10 periods, the series of returns and the conditional volatility of the studied index. Predicted conditional volatility indicates a slight increase for the 10 periods of time, while the predicted series of returns evolve downward. The study thus confirmed the theoretical hypothesis that increased volatility in stock markets occurs when price declines are recorded, the impact of negative news on stock markets being stronger than positive news.

Suggested Citation

  • Violeta DUTA, 2017. "Analysis and Modeling of NYSE Arca Oil & Gas Stock Index Returns," Hyperion Economic Journal, Faculty of Economic Sciences, Hyperion University of Bucharest, Romania, vol. 5(4), pages 48-62, December.
    • Handle: RePEc:hyp:journl:v:5:y:2017:i:4:p:48-62
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    References listed on IDEAS

    as
    1. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    2. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    3. Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-547, August.
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    More about this item

    Keywords

    returns; volatility; Garch model; stock index; prediction;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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